Question

Mast Corporation seeks your assistance in developing cash and other budget information for May, June, and July. At April 30, the company had cash of $11,000, accounts receivable of $869,000, inventories of $109,000, and accounts payable of $26,647. The budget is to be based on the following assumptions.

• Each month’s sales are billed on the last day of the month.
• Customers are allowed a 2 percent discount if payment is made within 10 days after the billing date. Receivables are recorded in the accounts at their gross amounts (not net of discounts).
• The billings are collected as follows: 70 percent within the discount period, 15 percent by the end of the month, and 12 percent by the end of the following month. Three percent is uncollectible.

Purchase data are as follows.

• Of all purchases of merchandise and selling, general, and administrative expenses, 63 percent is paid in the month purchased and the remainder in the following month.
• The number of units in each month’s ending inventory equals 125 percent of the next month’s units of sales.
• The cost of each unit of inventory is $8.
• Selling, general, and administrative expenses, of which $5,000 is depreciation, equal 15 percent of the current month’s sales.
• Actual and projected sales follow:

	Dollars		Units
March	$	140,400	10,800
April		157,300	12,100
May		141,700	10,900
June		148,200	11,400
July		130,000	10,000
August		12,600	10,200

Required:

a. Compute the budgeted purchases in dollars for May.

budgeted purchases

  
b. Compute the budgeted purchases in dollars for June.

budgeted purchases

  

c. Compute the budgeted cash collections during May. (Do not round intermediate calculations.)

budgeted cash collections

d. Compute the budgeted cash disbursements during June. (Do not round intermediate calculations.)

budgeted cash disbursements

e. Compute the budgeted number of units of inventory to be purchased during July.

budgeted number of units

Answer 1

A	Budgeted Purchases	May
		In Units
	For May Sales	10900
	Add: Desired Closing Inventory (125% of June Sales)	14250
	Total Requirement	25150
	Less: Opening Inventory(125% of May Sales)	13625
	Net to be Purchased	11525
	Rate PU	8.00
	Net to be Purchased in Value	92200
B	Budgeted Purchases	June
		In Units
	For June Sales	11400
	Add: Desired Closing Inventory (125% of Jul Sales)	12500
	Total Requirement	23900
	Less: Opening Inventory(125% of Jun Sales)	14250
	Net to be Purchased	9650
	Rate PU	8.00
	Net to be Purchased in Value	77200
C	Budgeted Cash Collections	May		Formula
	Collections for March Sales	16848		140400*12%
	Collections for April Sales	131503		(157300*70%*98%)+(157300*15%)
	Total Collections	148351
D	Budgeted Cash Disbursements	June
	For May Purchases	34114		(May Purchases=92200*(100%-63%)
	For June Purchases	48636		(May Purchases=77200*63%)
	S&A Expense for May	6014		((141700*15%)-5000)*(100%-63%)
	S&A Expense for June	10855		((148200*15%)-5000)*(63%)
	Total Collections	99619
E	Budgeted Purchases	July
		In Units
	For Jul Sales	10000
	Add: Desired Closing Inventory (125% of Aug Sales)	12750
	Total Requirement	22750
	Less: Opening Inventory(125% of Jul Sales)	12500
	Net to be Purchased	10250